How to Price Your House to Sell
If you expect a return on investment when you put your home up for sale, you aren’t alone. According to NerdWallet.com and their 2018 Home Buyer Report, 64% of people make buying a home a priority because they see it as a good investment.
To make even more off their investment, many decide to sell their home without a real estate agent. The benefit to this is that you can cut the cost of the commission agents charge. However, you’ll be left to do the work on your own, including pricing your home to sell.
When you’ve made the decision to sell your home, it’s no surprise that one of your first questions will be, “How much can I sell my house for?”
If you lack the experience of selling a home or you don’t understand the market, pricing a home to sell can be a tricky process. Price it too high and you won’t get any offers; price it too low and you could miss out on thousands of dollars.
Before you put that “For Sale by Owner” sign on your front lawn, you’ll need to know how to price your home to sell so you don’t walk away leaving money on the table. Follow these tips to help you find the right sale price for your home.
Look at Your Comparables
When determining your home’s value, a comparable is one of the most important resources out there. It will show you what a home like yours is selling for in your area, so you can come up with an accurate listing price.
A comparable, or comp, is a similar home in your area that went up for sale or sold recently. The comparable home should be similar in size, age, condition, location, and number of bedrooms and bathrooms. Since more value is placed on newer homes, bigger houses, homes in better condition, or those with extra features, it is necessary to find homes as similar to yours as possible. You wouldn’t put your 1,400-square-foot, three-bedroom house in the same price range as the 2,000-square-foot, four-bedroom house down the street, would you?
To get the best idea of your home’s value, you’ll want to review at least three comparables and find a median price. When looking for comparable homes, consider the following:
- Proximity: under one mile from your home, if possible, and in the same school district
- Age: built within 5 years of your home
- Size: similar lot size and square footage
- Rooms: same number of bedrooms and bathrooms
- Special features: similar features such as a pool, updated kitchen, finished basement, and big backyard
- Timing: listed and/or sold as recently as possible, within the last 3 to 6 months
Your home is only worth what others are willing to pay for it, and comps will tell you how much people may be willing to pay. When trying to figure out how to price your home to sell, you should review a few different types of listings.
Recent closed sales provide you the final price a home sold for and will likely reflect the current market value of your home. However, they won’t disclose a few things that may affect the price, like crime stats, home condition and curb appeal. And, more importantly, they won’t disclose any seller’s concessions, which are the additional costs the seller paid to close the deal.
Active Listings, Pending Sales, and Withdrawn Listings
While sold listings will tell you the amount similar homes have sold for in the past few months, pending sales can provide the most up-to-date information on home pricing at the moment. Though the sales are not yet final, the buyer and seller have agreed on a price. That means pending sales can provide insight on what homes are selling for right now and indicate where the market may be moving.
Active listings are helpful in giving you an idea of what the competition is like, but that should really be their only use. While it is good to be aware of your competition, do not use active listings to price your home. These prices are not final and may change throughout the home’s sale process. Unbeknownst to you or the seller, the price may even be too high for the market and cause the listing to expire in the near future.
While an expired or withdrawn listing isn’t good for the seller, it may be beneficial for you. Withdrawn or expired listings can help you learn from other sellers’ mistakes. Review a few to see if you spot any patterns. Were the prices similar? Were they too high? These types of listings could give you an idea of what home buyers are not willing to pay for homes in your area.
Comparative Market Analysis
A Comparative Market Analysis (CMA) is a more in-depth examination of comparable homes in the area and is completed by a real estate agent. “It starts with subject property research including gathering details, reviewing public records, tax information and property MLS history reports,” explains Doug Gartley, compliance program manager and real estate broker at Rocket HomesSM. “Once the property research is completed, the agent identifies comparable properties, makes adjustments and provides an estimate of value.”
Since no two homes are alike, those price adjustments are based on the differences between the comparable properties and your home. These differences can include the condition of the home, exterior landscaping, or any additions or upgrades made on the home.
As a sophisticated analysis, the CMA includes more than just comparables. According to Gartley, “The report should also include details and consideration of things like current market conditions, days on market, absorption rate/inventory levels and the list price/sale price ratio.”
Having a detailed report like this pays off. As Gartley explains, the CMA can help “recommend to the consumer a price range and strategy for selling a home in the shortest amount of time for the most amount of money.”
CMAs are completed by real estate professionals to help determine their clients’ current property market values. Even if you aren’t using one to sell your home, you can still request CMAs from a real estate agent. They often provide them to home buyers and sellers at no cost in hopes of gaining that person as a client.
How to Find Comps
Along with CMAs from a real estate agent, you can find comparables on real estate listing sites and in public property records. You can also use our home estimating tool, Pricing Scout. It will provide an estimated market value of your home along with a list of recently sold properties in your area that includes each home’s number of bedrooms and baths, square footage and sale price.
Once you calculate a base value of your home from the comparable houses in your area, you’ll want to tweak the price based on such factors as when you’re selling your home and how you want the price to appeal to potential buyers.
Anyone who’s taken a class in economics knows the basics of supply and demand. When demand is high and supply is low, prices increase; when demand is low and supply is high, prices decrease. This is true in real estate as well, with three types of markets:
- Buyer’s market: more homes for sale than there are buyers
- Seller’s market: more buyers than there are homes for sale
- Neutral market: number of buyers and homes for sale is close to even
In a buyer’s market, it can be difficult to sell your home – and at a good price – because buyers have a bigger pool of homes to choose from. Competition amongst sellers is high, giving buyers the power to negotiate for a lower price. Buyers may have the upper hand in this type of market, but that doesn’t mean you have to accept an offer well below your home’s value or what you’re willing to sell for. When pricing your home to sell in a buyer’s market, make sure you allow some room for negotiating, but stay firm on the minimum price your willing to accept.
You may have more leverage in a seller’s market. With low supply, many buyers compete for the same homes and sellers can receive multiple offers at or above the asking price. While you may have the upper hand here, if your asking price is too high, your home may not sell at all. Therefore, listing at market value may put you in the best position to sell your home at or above your asking price without the risk.
In a neutral market, everything is just that – neutral. Competition isn’t necessarily high or low and listing prices stay relatively close to the average sold price for similar homes in the area. You’ll want to stay within the median price of your sold comparables. Then, keep your eye on active listings, pending sales, and recently sold homes and adjust accordingly.
Avoid Round Numbers and Random Numbers
Believe it or not, there is a bit of psychology that goes into setting a price that buyers may not be aware of. When considering how you want buyers to perceive your home price, avoid round and random numbers.
Round numbers can seem vague and could lead the buyer to believe you’re estimating your home’s value and, as such, there may be room for negotiation. According to the Harvard Business Review, “If you place a round listing price for your house, buyers may think that you do not know what your house is worth, which could lead to smaller counteroffers and ultimately a lower selling price.”
Instead, you should price your home with a more specific price by avoiding numbers that end in zero. For example, price the home at $249,000 instead of $250,000. People place more value on precise numbers because they don’t seem like a ballpark figure. When buyers see a more specific number, they assume you did your due diligence to come up with it and that you’re confident in the price you chose.
On the other hand, don’t be too specific with your numbers, as that could have the opposite effect. For example, if you price your home at $248,687 instead of $249,000, the random pricing can be distracting and harder to process for home buyers. It could also give them a poor impression of you. The number can seem so random that the buyer may think you are being ridiculous or even that you’re bluffing. On the same note, they could interpret the rigid price as a sign you are unwilling to negotiate and walk away from the deal completely.
Utilize Online Search Ranges
In our tech-savvy world, more and more people are using the internet to search for houses; and many are even finding their future homes online. According to the National Association of Realtors, 50% of home buyers in 2018 found the home they eventually purchased by searching online. These types of listings can be a valuable resource when it comes to selling your home, but buyers have to be able to find your listing. Remember, people can’t buy your home if they never find it.
One easy way to enhance your home’s searchability on listing sites is to be strategic with your pricing. Most home buyers have a price range they want to stay in when purchasing a home, and that’s the price range they will typically stay in when they search online, too. This is especially important to remember when it comes to the maximum price they are willing or able to pay. While someone’s minimum price may be a little more flexible (who doesn’t love a steal?), the maximum price is more set in stone because it’s usually the highest home price they can afford. Most people will not search for homes above their max price. Why torment themselves by looking at and falling in love with homes they know they can’t afford?
Consider keeping your price just below the nearest round number. For example, if you’re thinking about pricing your home to sell at $254,000, consider pricing it at $249,999. That way, your home can show up for buyers searching a max price of $250,000.
Much of housing demand depends on market conditions, but it is also affected by seasonality. Typically, late spring and summer are known as “purchase season” in most parts of the U.S. People are coming out of hibernation with tax refunds in hand, and the warm weather has them more willing to explore neighborhoods and attend open houses. It’s also the season people with children purchase a home, hoping to move and get settled before the new school year. This influx of home buyers creates more demand, which can drive up home prices.
Of course, there are regional differences when it comes to purchase season. For example, if you live in a state with year-round sun and nice weather – like Florida or Arizona – you may see more demand in the late fall when snowbirds are in search of their new winter homes. Research your area to find the best time of year to sell.
How Much to List for vs. How Much to Sell For
It’s important to remember the difference between “How much can I list my house for?” and “How much can I sell my house for?” More than likely, the price you list your home for will not be the price you sell it for. Throughout the sale process, you may cut the price, negotiate a new price with a potential buyer, or accept a higher price due to a bidding war.
A bidding war happens when two or more buyers want to purchase your home, so they repeatedly try to outbid each other’s offers to beat out the competition. For a seller, it’s a good position to be in, as bidding wars often end with an offer that meets or far exceeds the asking price.
Bidding wars are often a seller’s dream – so much so that they may try to strategically list their home at a lower price in an attempt to start one. Though this strategy can work, it can also backfire on you if the financing falls through on the offer you accept. And when a deal falls through, it may look bad on the seller. The strategy can also backfire if you only receive one offer.
If you do find yourself in the position where you receive a low number of offers, only one offer, or no offer at all, that could be an indication that your listing price – even if you did make it lower – could be too high for the market. You may have to consider cutting your price.
While no seller wants to alter the price of their home, it happens more often than you may think. In fact, 60% of sellers change their price at least once after listing it, according to a Consumer Housing Trends Report by Zillow.com, an online real estate database.
When trying to determine when to cut your listing price, these telltale signs will tell you it’s time:
- No one is scheduling showings or attending open houses
- You’re not receiving offers
- Other active listings in your area are priced much lower
- Multiple people are telling you the price is too high
- The appraisal came back lower than your listing price
If you realize your listing price is too high, it is better to change it sooner rather than later and with one big correction, rather than smaller price cuts over time. Why? Because the sooner you cut the price, the sooner you can sell the home. And one big price cut will grab the buyers attention, whereas smaller cuts over time may fly under their radar. A small reduction may not seem like a big enough drop to attract the buyer, either.
Learning how to price your home to sell is one of the first obstacles you’ll encounter when you decide to sell your home on your own. But picking the right price can ensure a smoother sale process, help you be more competitive in the market and may reduce the risk of an appraisal coming back lower than expected.
If you need more assistance finding the right listing price for your home, try our Pro Pricing option. It pairs you with a licensed professional who will create a detailed price report based on an in-depth evaluation. The report will include sold and active listings, recommended repairs, and a time-on-market estimate.